Our State's Jobless Rate is Declining. Is That Good News?

In recent months, Rhode Island's unemployment has been falling. In fact, whenever the monthly labor market numbers are released, the local media focus largely, if not entirely, on the unemployment rate and how it changed. So, based on these recent declines, Rhode Island's economy must be doing noticeably better. Or is it?

First, it is critical that this statistic be viewed in relative, not absolute, terms. While Rhode Island's unemployment rate has fallen from 11.5 percent, its level from August through December of 2010, to 10.8 percent in June of 2011, it remains the third highest in the entire US! So, Rhode Island continues to be known for its beautiful beaches and its very high unemployment rate. Quite a niche, isn't it? Let me also state for the record that I don't believe that our state's jobless rate was constant over that long of a period. The single value for the entire August to December of 2010 period is doubtless the result of a smoothing procedure utilized by the US Department of Labor.

Second, we must not forget to consider the way the unemployment rate itself is calculated. To be counted as unemployed, and therefore part of the monthly statistic, an unemployed person must be unemployed (obviously), physically able to work, and this is the kicker, actively seeking employment. What that last condition indicates is that it is quite possible for the unemployment rate the fall not as the result of higher employment, as most people think has to be the case, but because unemployed persons opt to cease their active job search. In economics, this is known as the "discouraged worker effect." Actually, that's a pretty dumb name, since these people obviously aren't working and they're well beyond being discouraged. So, if an unemployed person stops actively seeking employment, that person is no longer counted as being part of the labor force, and is therefore not counted as being among the "officially" unemployed. In light of all of this, you should always view the unemployment rate and labor force participation together. Has this odd combination of declining labor force and falling unemployment been occurring in Rhode Island lately? A picture is worth a thousand words. The chart below (click to enlarge) shows these two elements in Rhode Island for the last twelve months.

Do you see a pattern here? Actually, how can you miss it? For the entire time that Rhode Island's unemployment rate has been declining (all of 2011), our state' labor force participation rate has been declining as well. Note: the labor force participation rate  (the red line in the chart above) is the percentage of our state's working age population that is in the labor force. Based on the chart above, there is definite evidence consistent with recent declines in our state's unemployment rate being at least partially related to Rhode Island residents dropping out of the labor force (as they stop actively seeking employment). And there can be strange results from the monthly Household Survey (see previous blog post on this). But this doesn't tell the entire story.

Third, there are actually two labor market surveys. The unemployment rate is obtained from the Household Survey. I won't tell you how small the sample size is for Rhode Island. This survey looks at Rhode Island's working age population and does not restrict employment to being exclusively within Rhode Island. So, Rhode Island residents working in other states are included in this survey, as are self-employed individuals. The other labor market survey, the Establishment Survey (and approximations to this by the Current Employment Survey in the short-term), focus exclusively on jobs within Rhode Island. Self-employed individuals, however, are excluded from this survey. So, given these differences, it is not uncommon for the two surveys to give different results, sometimes very different results. In recent months, survey results were noticeably different at times. Fortunately, though, the results for June were more in line with each other. Looking at recent results for this employment survey, job gains since January of this year (compared to a year ago), rose from 4,100 to a high of 9,400 in May, before declining to 8,800 in June. Throughout that time period, job loss fluctuated between 4,100 and 5,100. So, the net change in payroll employment here (what the local media inevitably reports as "new jobs" has actually been in an uptrend since January of this year. For the most recent three months, the net change in employment has been greater than 4,000. Thus, part of the reason for our state's declining unemployment rate over this period has in fact been for the "right" reason - improving employment (also see previous blog post dealing with this).

Finally, the unemployment rate is what economists refer to as a lagging indicator. In other words, its behavior this month to a large extent reflects events and trends that occurred in past months. Embodied within the way the unemployment rate is calculated is the likelihood that when an economy begins to improve, some discouraged workers will begin to actively seek employment once again. When that happens, they are once again counted as being part of the labor force and unemployed. This will often result is an increase in the unemployment rate, not a decrease, as one would normally assume when economic conditions improve. Rhode Island's declining participation rate itself is a net change of persons leaving (discouraged workers) and persons re-entering the labor force once they re-commence active job search.

So, has Rhode Island's economic performance, as summarized by the recent performance of its jobless rate been improving? Yes and no. Unequivocally! To summarize: Rhode Island's unemployment rate has been improving of late, yet it remains among the highest in the US; improvements in our state's jobless rate are not entirely the result of a better employment climate, but at least partially the result of our unemployed dropping out of the labor force.

MY REQUEST TO THE LOCAL MEDIA (an economist's pathetic plea!):
Please stop focusing so much on our state's unemployment rate, it is not a very accurate basis for portraying our state's overall economic performance. You need a much broader basis to do this accurately, such as my Current Conditions Index.

If, however, you opt to continue using the unemployment rate as your primary basis for assessing economic activity here, when you drive home after writing your story, only look in your rear view mirror for guidance the entire time (a practical example of relying on a lagging indicator). Let's see whether or not you make it home in one piece!

A New License Plate for Rhode Island

For quite some time now, I have been thinking of a way for Rhode Island to make some money while better synchronizing its name and designation as the Ocean State with its economic realities and the way things are done here. After great deliberation, I came up with my idea: a new license plate for Rhode Island. Like anything that can generate revenue in this state, a few changes will have to be made -- in this case changing our state's name from Rhode Island and Providence Plantations to something much shorter that reflects our fundamental approach to the statewide fiscal "status quo." Then, using this as "cause," I suggest changing our designation from the Ocean State to something that is the "effect" of the way we do things here. Here's what I came up with (click to enlarge this):

Note that I was able to preserve the wave on the license plate, but I changed its color to red reflecting how Rhode Island is drowning in the debt it has amassed over decades of questionable management.

Media Coverage of the May 2011 Current Conditions Index

The May 2011 Current Conditions Index (the full report is given on my website) received a fair amount of coverage in the local media. Here is my regular monthly discussion of the index on Channel 10's Business Talk with Frank Coletta. The Providence Business News, as always, gave very nice coverage, as did GoLocalProv. 

Current Conditions Index: May 2011

This post contains most of the May Current Conditions report, but it excludes the data table. If  you would like to see the entire report as well as previous reports (in PDF format), go to my web site.

The second quarter hasn’t been all that kind to Rhode Island. For May, the Current Conditions Index remained at 58, its third consecutive month at that value, as only seven of twelve indicators improved relative to their values a year ago. Clearly, Rhode Island’s rate of economic growth has slowed and may well be plateauing. This becomes apparent by comparing CCI values for each month of this year with their corresponding values last year. For March, April, and May, the three months with CCI values of 58, 2011 values have fallen below their 2010 levels. And, unlike what we have seen in the last two months, where more than half of the CCI’s indicators had very difficult “comps” to beat from a year ago, this was true for only four indicators in May.

In addition to this, the trends in several indicators appear to have changed in ways that will make it more difficult for our rate of growth to increase from its current level. The indicators I am referring to are the Labor Force, which has now declined or failed to improve for the last four months, and the number of Employment Service Jobs, a leading labor market indicator that includes “temps,” which has now fallen for the past three months. Finally, there have been several very pleasant surprises, most notably strength in our state’s manufacturing sector, leading the way throughout this recovery. But it appears that the momentum provided by that sector, especially Total Manufacturing Hours, may be fading. It is not clear at this point which indicators will be able to replace our manufacturing-based momentum.

The improving indicators this month were led by manufacturing strength, which has now been true for some time. Total Manufacturing Hours increased by 2.7 percent, its twelfth improvement in the last thirteen months, while the Manufacturing Wage rose by an amazing 6.7 percent, in part reflecting labor skill shortages. Retail Sales rose by 0.9 percent in May (my estimate), in spite of having risen by over 5 percent one year ago. Along with this, US Consumer Sentiment rose by only 0.3 percent versus last May, but this month’s improvement reverses two months of declines. New Claims, a leading labor market indicator that reflects layoffs, fell by 20.7 percent this month, its fifth consecutive improvement. Private Service-Producing Employment rose by 2 percent in May, its most rapid rate of growth in a long time. Unfortunately the benefits of this were somewhat offset by public sector employment weakness. Government Employment fell sharply, declining just under 5 percent in May, as budget cuts continued to exert negative pressure on our economy. Our state’s Unemployment Rate dropped sharply again, from 11.7 percent one year ago to 10.9 percent in May. That, however, was not necessarily good news, as our Labor Force failed to improve for the fourth consecutive month, reflecting what is becoming a disturbing trend of unemployed persons dropping out of the Labor Force, which helps to lower our jobless rate.

Single-Unit Permits, which reflects new home construction, continued its roller coaster performance, declining by 23.9 percent in May, its fifth consecutive double-digit decline, and ninth decrease in the last twelve months. And, as if that’s not bad enough, the actual number of permits for May for the entire state was only 51. Employment Service Jobs, a leading indicator that was once our “star” performer in this recovery, fell by 4.9 percent in May, its third consecutive decline. Finally, Benefit Exhaustions, which reflects long-term unemployment, rose by 5.3 percent in May, although it had a very difficult comp to beat from a year ago (-23.4%).

THE BOTTOM LINE:

In spite of all the trends currently taking place here, it is important to keep in mind that Rhode Island is in an economic recovery. May marked the sixteenth month of this recovery, so we do have substantial cyclical momentum and a “margin for error.” Unfortunately, Rhode Island is also plagued by a host of structural negatives that sap a great deal of its cyclical momentum. What is at issue here should be how rapidly our state’s recovery proceeds from here, not when or whether this recovery might end.

Rhode Island's Surprising Cyclical Strength

Although it still comes as a surprise to many Rhode Islanders, Rhode Island has been in a recovery since February of 2010. As of the time this is being written, we are approaching the one and a half year mark for this recovery.

In a number of blog posts I have spelled out precisely what a recovery means -- not a return to "normal" times, but a period where the overall level of economic activity is rising. The pace of the recovery ultimately determines how long it will take to return to "normal" times or to peak levels from the prior recovery for key indicators.


Over the past four months, employment in Rhode Island has turned in a surprisingly strong performance. On a year-over-year basis, while job loss has remained roughly constant, job gains have clearly accelerated (see blog post on this).  The result is important enough to show the following graph again here (click to enlarge).

As I was preparing monthly data for my next Current Conditions Index release, I came upon something that is also very welcome but unexpected: layoffs in Rhode Island have now fallen below their median level going all the way back to January of 2000. The next chart shows layoffs over this period (click to enlarge):

I used the median for this since the extreme values of layoffs during the last recession would push the mean significantly higher. The median, which is the middle value when all values are arranged in ascending order, will not get "pulled" higher as the mean would, so it is the preferred measure of "central tendency" here.

Three important points need to be made about the indicators reflected in these graphs. First, layoffs (actually New Claims for Unemployment Insurance), which is one of the indicators in my Current Conditions Index, is a leading economic indicator. This means that its changes today signal future movements in the overall level of economic activity. So, declining layoffs signal that Rhode Island's economy has been gaining momentum of late. Second, payroll employment overall, or its components, job gain and job loss, are coincident indicators, meaning that their changes reflect the current performance of the overall economy. From the first chart, the acceleration of job gain relative to job loss confirms what the recent downtrend in layoffs implies, that Rhode Island's overall economic performance is improving. Finally, since Rhode Island has income and sales taxes, improving levels of overall economic activity, which produce higher levels of income, result in added income and sales tax revenue. This is the basis for the recent "surprises" in tax revenue our state has witnessed.

What about the fact that Rhode Island's unemployment rate has remained stuck around 11 percent as these changes in layoffs and job gains have been occurring? While everyone pays a great deal of attention to the unemployment rate, it doesn't always move in lockstep with changes in payroll employment, for several reasons. Among other things, it is derived from a separate labor market survey, the household survey. And, the unemployment rate is a lagging indicator, so its changes now reflect what has occurred in past months. There is also a strange footnote to the way the unemployment rate is calculated: unemployed persons who stop actively seeking work are not counted as being part of the labor force, therefore they are excluded from the monthly unemployment number. The flip side of this is that when an economy improves, and some of the unemployed who had stopped looking for work begin once again to search for employment, they are now counted as part of the labor force, which tends to cause a short-term rise in the unemployment rate. However, recent declines in Rhode Island's jobless rate have largely been the result of our unemployed ceasing job search. So, it is quite possible that Rhode Island's unemployment rate might actually rise before it resumes declines based on the behavior of layoffs and job gains discussed above.

Let me point out a strange element of Rhode Island's current economic climate. Our state's jobless rate was third highest in the nation in May. Yet in spite of having so many unemployed persons here, and such a high unemployment rate, manufacturing wage growth has been very strong. While this signals recent manufacturing strength here, it also reflects the existence of skill shortages. Go figure!

Finally, at the same time Rhode Island's economy has experienced this enhanced cyclical momentum, a substantial number of structural negatives, most notably the lack of skills of our labor force, have offset some or much of this cyclical momentum. That explains why this recovery doesn't necessarily feel all that different from being in a recession.

EPILOGUE: After posting this last evening (7/7), the June payroll employment report for the US came out this morning. The results took everyone (including me) by surprise, as national employment rose by only 18,000, well below prior expectations. It will be very interesting to see the June numbers for Rhode Island when they are released in a few weeks. If they show no employment pause here, I will have to question the last few months of data here. I'll have a lot more to say on this if it actually occurs.

We're #50, we're #50, we're #50!!!

Congratulations to Rhode Island on its recent ranking of #50, worst in the entire country, for "America's Top States for Business 2011" by CNBC (here is a link to an interview with CNBC's Scott Cohn about this). This designation is richly deserved. Our state's leaders should be very happy, as they have worked tirelessly over the last few decades laying the groundwork that would allow us to attain this prestigious designation. Think of all the publicity Rhode Island will now receive from this, something a substantially tourism-driven economy like ours thrives on!

Rhode Island actually "improved" its ranking this year, in the sense that we do things here, moving from "only" #49 last year to the number 50 this year. This shows that Rhode Island can lead the nation, just as it did a few years ago when it had the nation's highest unemployment rate, beating even Michigan. As I am writing this, Rhode Island's jobless rate is ranked third highest in the US, so there is clearly more work to be done. Let's get moving Rhode Island state leaders!

Forgive my sarcasm. It has a very substantial basis and long history based on my continual disappointment with the way things are done (or not done) here.

Looking at this survey, it is clearly the case that any such survey comparing all fifty states embodies elements of "apples and oranges." Yes there are arbitrary values and weights that are part of a survey that arrives at a single value or score to characterize the entirety of a state's economic performance. For Rhode Island, though, it is not that we scored among the lowest in all of the categories covered. We failed to score very well in any of the categories, something that I recall discussing going as far back as the 1990s. In fact, I even formulated a rule to anticipate Rhode Island rankings:

LARDARO'S RULE FOR RHODE ISLAND ECONOMIC RANKINGS
In any fifty-state economic comparison, Rhode Island will tend toward its alphabetical ranking of 39th.

Our state's best category score was 24th, a tie between Quality of Life and Education. As CNBC states for the Quality of Life category: "We scored the states on several factors, including local attractions, the crime rate, health care, as well as air and water quality." For education: "We looked at traditional measures of K-12 education including test scores, class size and spending. We also considered the number of higher education institutions in each state." Rhode Island ranked its worst in Infrastructure & Transportation (#49). 


What do the categories Education and Infrastructure & Transportation have in common? They both pertain to infrastructure. Infrastructure & Transportation pertains to our physical infrastructure, while education deals with our human capital infrastructure (training and skills of our population). Both remain seriously deficient. We have horrible roads and a labor force with grossly inadequate skills. It is important for us to own up to the fact that this information is hardly a secret to anyone, except perhaps any Rhode Island leader who chooses to live in a state of denial about Rhode Island's present economic realities. And, it shouldn't take very long for anyone to realize that Quality of Life, Education, and Infrastructure & Transportation are all interrelated, especially in an information based economy like that of Rhode Island. So, whenever we take actions to improve one of these categories, we indirectly move toward making improvements to all three. Does anyone want to argue that the above categories are independent of the cost of doing business here?

I'll let readers look at the survey results in greater detail, viewing all of the categories and the ranking for each state. But it shouldn't come as a surprise to anyone that Rhode Island ranked very badly on: Business Friendliness (#48); Cost of Doing Business (#46); and Cost of Living (#43). 


Let me finish by stating that the recent budget proposed by the Rhode Island legislature should not be viewed in the context of being "not as bad as the originally proposed budget," but in terms of whether or how it helps our state's national ranking problems and its business climate overall. As I have stated all too many times over the years, how we balance our state's budget is every bit as important, if not more so, than balancing it in general. Rhode Island did make some cuts to spending, but based on my strong suspicion that projected revenue growth has been overstated for FY2012, not enough spending cuts have been made. This will almost certainly result in yet another "January Surprise," as more budget changes will be required in January to ultimately balance the FY2012 budget. Let's hope our state's leaders prepare for this ahead of time, although that is exceedingly unlikely given their history. How can Rhode Island  be a "leading" state when the standard operating procedure of its leadership is entirely reactionary, not proactive. The answer has been that we do lead -- in things we never wanted to lead in, such as our state's worst business climate ranking.

Energy Prices and Feedback Loops

As I am writing this (6/23/2011), energy prices are falling dramatically. This has been coming for some time now. There were a number of signs that this day would come. But you would never have known this based on the way the recent run-up in commodity prices has been covered in the media.

Let's start by considering an obvious relationship between energy prices and economic growth illustrated in the chart below (click to enlarge).

Everyone knows this. We witnessed this first hand in early 2008 and again this year. Higher energy prices affect both supply and demand. As for demand, higher energy prices reduce the purchasing power of consumers in terms of their real (inflation adjusted) income, diminishing their ability to purchase goods and services. This cuts into discretionary spending, spending we don't really have to do, but like to do. Industries that thrive on discretionary income are then hurt (ex: restaurants). On the supply side, higher energy costs increase input costs to businesses, raising their overall costs, potentially hurting their profits. How much will business costs rise? That depends on how much a particular business or industry uses the now-more-expensive energy inputs.

As this was occurring, media pundits did something they almost always do, attempted to predict the future entirely in terms of what was happening at that time. The basis for their forecasts were therefore predicated on the use of rulers, not economic theory or underlying economic signals. The result was forecasts like the one below (click to enlarge):

So, for those naive enough to rely on the media, panic naturally ensued. Would energy prices ever fall? How would we deal with the onslaught of permanently higher energy prices?

Of course all of this overlooked a very important saying about energy prices that has more than passed the test of time: "The best cure for higher energy prices is higher energy prices." In other words, you must take into account not only the entire set of shorter-term effects associated with rising energy prices outlined above but the longer-term impacts as well.

There are several effects of weakening demand. First and foremost, less demand hurts business activity overall, making it more difficult for firms to hire workers, possibly causing some layoffs. In other words, firms will tend to purchase fewer inputs overall than if activity were stronger. And as they cut back on purchases, their suppliers are also dragged into the weakness as this process continues (economists refer to this as the multiplier). Second, with diminished demand, even though costs are higher (as shown above) the ability of firms to pass along these higher costs is reduced, intensifying the overall weakness as profits weaken. These are important macroeconomic effects. Over the longer-term, the production of energy tends to rise, further helping to limit energy price increases.

Combining all of these factors, what occurs is a "feedback loop," where slower (and slowing) economic growth hurts the demand for energy, moderating or reversing earlier energy price increases. This is illustrated below (click to enlarge):

This is what we are beginning to witness now. The Federal Reserve and a host of other forecasters have been adjusting their growth projections for 2011 lower, largely the result of their presumption of continued higher energy prices. So, contrary to being able to forecast energy prices using a ruler, it is necessary to consider all of the effects I have outlined above. What will energy prices look like in the future when we correctly allow for this feedback loop? The chart below shows this (click to enlarge):

What all of this shows is that energy prices and the level of economic activity are simultaneously determined. There is not a one-way-only causation. I wish it were, that would make economic forecasting much easier!

From this, it should now be fairly easy to grasp the fact that lower energy prices are not necessarily an unmixed blessing. It is necessary to first consider why energy prices are falling. Since the emergence of OPEC in the early 1970s, energy prices often end up declining as a result of economic weakness they cause to occur. This does not mean that economic activity is about to explode. It will improve, but only after imploding for a bit longer (multipliers taking things lower for a while). Reiterating that last point, while higher energy prices don't instantly lower economic activity (it takes time for the effects of everyone paying the extra money to be felt), lower energy prices won't instantly restore the losses in economic activity. All of this takes time. That's why lags are so important in forecasting and economic analysis.

EPILOGUE: I created all the graphics for this blog post during my office hours in April, when I predicted to my classes on numerous occasions that we were near a short-run top in energy prices and nearing some sort of stock market correction. What was my basis for these predictions?

I used intermarket analysis, which is based on the fact that key asset markets (stocks, bonds, currencies, and commodities) are all linked together in today's global economy (actually I have created a course in this that I was teaching this spring).  I showed my classes that commodity prices were indeed rising (we all knew that). But, as commodity prices were rising, the inflation "alarm bell," interest rates, were actually declining not rising as higher expected inflation would suggest. Along with this, one commodity that is particularly sensitive to economic growth, copper, was also declining. Finally, the defensive sectors of the stock market (consumer staples, health care, and utilities) were outperforming the overall stock market. So, if future commodity prices were best depicted by a "ruler-based forecast" this intermarket pattern would either not have emerged, or it would have been temporary at best. The rest, as they say, is history.

I didn't make this post in April because, quite honestly, everyone would have thought that I was crazy. Gee that would be something new!

Media Appearances -- June 2011

Over  the last week, I have been on the radio discussing Rhode Island's pension crisis and the recently released budget for FY2012.  My discussion on the pension crisis was on WPRO with Buddy Cianci last Thursday (June 16). During that interview, we discussed my article in The Providence Journal dealing with my assessment of our state's pension crisis and my frustration at the lack of action by our state's leaders. On Monday (June 20), I was interviewed by Helen Glover on WHJJ about the newly proposed state budget. As I stated to Helen, I have a strange feeling that the projected deficit that the legislature is working with is too low and that the budget proposed at the end of last week will lead to yet another "January Surprise." Only time will tell if I am correct on this.

May 2011 Labor Market Data

The labor market data for May of 2011 have now been released. As always, Rhode Islanders and their media focused on the unchanged unemployment rate from April, 10.9%. And, in numerous stories, employment was described as "adding 1,300 jobs compared to April." If one goes behind the numbers, as I always do, there's a lot more going on, and as always, the jobs added figure that was reported was incorrect.

Perspective: I highly recommend that persons consider not just looking at data like this by focusing on the change from one month to the next (called month-to-month, or M/M). Very often it gets revised, so what we think happened this month ends up being changed, for better or worse, the next month. While it is useful (albeit fleeting) to look at month-to-month change, it is preferable to consider both what happened compared to a year ago (called year-over-year, or Y/Y) and the one-month change.

Unemployment Rate: Looking at Rhode Island's unchanged (M/M) unemployment rate in May, 10.9%, this was well below its level last May's value of 11.7%. However, our state's labor force fell over this period, by a number roughly equivalent to the decline in the number of unemployed. Conclusion: the "improvement" in our state's jobless rate from a year ago was largely due to unemployed Rhode Islanders dropping out of the labor force which statistically lead to their no longer being counted when the rate was calculated.

Another point I need to make concerns an extreme rarity that occurred with the May data. Unemployment data along with the number of working Rhode Island residents comes from the Household Survey. Forgive me as I provide the basic labor market identity:

LF = E + U

or Rhode Island's labor force (LF) for any period is the sum of the number employed of employed Rhode Islanders (E), referred to as resident employment, plus the number unemployed (U) Rhode Islanders. Here's the rare occurrence we witnessed with the monthly data (change from April to May of 2011):

Change in LF = -1,400

Change in E = -1,400

Change in U = -100

Obviously, there is rounding error here which should be overlooked. Here's the oddity: while our state's unemployment rate remained unchanged at 10.9%, there were 1,400 fewer Rhode Island residents employed (we'll overlook the change in U here). How and why would employed Rhode Islanders drop out of the labor force? It would be very easy to explain why unemployed persons would drop out -- lack of job opportunities. But employed??? The best explanation I can come up with is that a number of self-employed Rhode Islanders weren't doing so well and packed things in (literally). I guess they then went to a status where they opted not to look for work, leading to roughly similar declines in resident employment and the labor force. Will this oddity be present when the June data are released in a month? I wouldn't at all be surprised if it disappears!

Employment: As if all of this weren't confusing enough, there are actually two separate measures of employment. The first, presented above, from the household survey, is resident employment, the number of Rhode Islanders working, whether in Rhode Island or somewhere else. There is a second survey, the establishment survey, that counts the number of jobs in Rhode Island, or payroll employment. Unlike resident employment, this measure does not count self-employment. And, in order to compare adjacent months, the data must take seasonality into account, using seasonal adjustment.

Comparing month-to-month changes in employment, for resident employment, there was a decline of 1,400 (see above). For payroll employment, the gain that was reported was 1,300. The fact that there were different changes in both measures is not uncommon. What must be taken into account, however, is that the payroll employment figure for jobs added is almost always reported incorrectly.

To give a sense for why this is so, let me change to year-over-year payroll employment change, the measure I pay most attention to since monthly changes are often modified the next month. The chart below (click to enlarge) gives the number of jobs added and jobs lost over the last year.

Let's focus on May of 2011. For that month, Rhode Island had job gains of 9,500 versus job losses of 5,300. The net change in employment (year-over-year) was therefore 4,200. The local media, however, always reports this as 4,200 jobs added, which is clearly incorrect. Since February of this year, job gains in Rhode Island have clearly accelerated. Sadly, job loss has remained stubbornly high, leading to overall employment growth (i.e., change) of less that one percent (0.9% for May). 

So, this look into the labor market data released each month should illustrate that there's a lot more going on than any simple explanation can accurately conclude. Keep in mind that there are two labor market surveys, not one, and these often reflect different forces at work and thus come to different conclusions. And, for someone who has been following all of this in depth for as long as I have, sometimes I don't even understand all of what's going on. I guess that's why God invented data revisions!

Media Coverage of the April 2011 Current Conditions Index

The April 2011 Current Conditions Index (the full report is given on my website) received a fair amount of coverage in the local media. Here is my regular monthly discussion of the index on Channel 10's Business Talk with Barbara Morse Silva. The Providence Business News, as always, gave very nice coverage, as did GoLocalProv. Finally, I was also on the radio with Buddy Cianci on June 2 where we discussed pension issues and the Moody's downgrade for Rhode Island.